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Archives: 09/2008

Health economist Dana Goldman, according to his bio, “holds the RAND Chair in Health Economics and is the Founding Director of the Bing Center for Health Economics at RAND. He is also an Adjunct Professor of Health Services and Radiology at UCLA.” He also started a peer-reviewed journal or something. So, not exactly a slouch in the health policy/economics realm.

the health policy debate is preoccupied with the wrong issues — for example, covering the uninsured. The real challenge for society is deciding how we can best buy better health, not just health care. In fact, I suspect that early child development, education, clean air, and medical research may offer better returns than health insurance and more medical services. But it may also turn out society should be spending more, not less, on medical care — just doing so in a more prudent manner.

Congress Daily reports that an Obama administration “would likely create a national technology czar with broad authority to develop policy, elevating high-tech issues to the cabinet level in a major recalibration of the government’s approach to regulating the communications sector.”

No thanks.

Technology, telecommunications, and information policy are important areas, but not everything that is important needs a lot of attention from the government. And as federal priorities go, tech is not even in the same league as national defense and fiscal order - issues that deserve a cabinet-level officer.

Creating a cabinet-level “tech czar” would be an odd joke and it would stand out as a queer sop to some political constituencies. It’s an unserious idea.

If you’re on the fence, consider the results that have come from raising other fields to “cabinet-level” importance. Education ascended to these heights in 1979 with the establishment of the Department of Education under the Carter administration. Nearly 30 years later, education in America is no better for it, and arguably even more awash in bureaucracy and inefficiency.

Yes, technology is important. No, a federal “tech czar” is not a good idea.

Matt Yglesias details the ways that McCain-Feingold is restricting his free speech rights. It seems that because Matt now works for a company that lacks a “media exemption,” he’s prohibited from commenting on the “character, qualifications, and fitness for office” of candidates for office. Since Matt has an extremely low opinion of one of the major presidential candidates, I imagine this is pretty hard for him.

And yet Matt doesn’t reach what seems to me the obvious conclusion: that McCain-Feingold is a restriction on free speech that can’t be reconciled with the First Amendment. Matt doesn’t defend McCain-Feingold either, and he’s said in the past that he doesn’t think McCain-Feingold will accomplish much. But it’s awfully hard to come up with an interpretation of “Congress shall make no law… abridging the freedom of speech” that doesn’t protect Matt’s right to question the “qualifications and fitness for office” of candidates for office, or the Center for American Progress’s right to pay him to do so.

Update: Matt writes to point out that both he and his erstwhile colleagues at the American Prospect have long opposed McCain-Feingold as a restriction on free speech. Good for them. They’re more enthusiastic about public financing than I am, but they recognize the basic point that the First Amendment doesn’t allow Congress to restrict people from criticizing political candidates in the months before an election. It’s a pity that the “liberal” members of the McConnell court had trouble grasping the same point. Maybe they should spend less time reading the censorious New York Times editorial page and more time reading the Prospect.

The average corporate tax rate across 106 countries surveyed was 26 percent. By comparison, the U.S. corporate tax rate is 40 percent.

The average rate across the 30 OECD industrial nations is down from 38 percent in 1996 to 27 percent today.

The average rate across the European Union countries is down from 38 percent in 1996 to just 23 percent today.

But rates are falling so quickly that KPMG’s new survey was outdated before the ink was dry. Just this week, South Korea announced that it was speeding up a cut to its federal corporate rate from 25 percent to 20 percent, and Sweden said that it would cut its rate from 28 percent to 26 percent.

What does all this mean for America’s economy? Dan Mitchell and I tell you in Global Tax Revolution. In part, America’s failure to reform its corporate tax threatens to:

Induce more U.S. corporations to move more of their investment to foreign locations such as Ireland and China.

Induce more foreign corporations to avoid the United States when choosing the location for their next computer, automobile, or pharmaceutical plant.

Induce corporations to work even harder to change their legal structure, operations, and international transactions to minimize their reported U.S. profits.

Give U.S. multinational corporations even more reason to keep their foreign earnings parked abroad rather than to send them back to U.S. headquarters.

All these decisions will reduce American economic productivity, and thus reduce wage rates for average U.S. workers over time.

And, unfortunately, all these changes will likely induce more breast-beating from politicians on Capitol Hill about ”Benedict Arnold” companies moving investment and profits offshore.

America will eventually cut its corporate tax rate, but we can avoid a lot of economic pain and displacement if we do it sooner rather than later.

Statist politicians and international bureaucracies such as the OECD and UN routinely attack tax havens, claiming that they lead to “harmful tax competition.” Yet at no point do critics bother to provide any evidence for this claim. This mini-documentary that I narrated for the Center for Freedom and Prosperity looks at the empirical data and scholarly research and reports that tax havens actually have a very positive impact on the global economy.

As with my other videos, I very much would like feedback. Indeed, I hope that this video is an improvement over earlier productions (www.youtube.com/afq2007) in large part because of the helpful comments I have received. Needless to say, the video contains a plug at the end for the new book Chris Ewards and I wrote.

The United States has the second-highest corporate tax rate in the developed world. To make matters worse, the U.S. has the world’s worst “worldwide” tax system for companies, meaning that American firms competing in global markets have to pay tax to the nations where they operate - and then report that same income to the IRS for additional taxes. Needless to say, this is a huge ball-and-chain that undermines U.S. competitiveness. Companies try to protect their shareholders and workers by taking all possible steps to minimize and/or delay these onerous additional taxes. Sensible people would look at this mess and immediately decide that the right answer is lower tax rates and a shift to “territorial” taxation. Politicians, however, think that companies should deliberately choose to pay higher taxes. Tax-news.com reports that Senators Baucus and Grassley are especially fond of blaming the victims:

Senate Finance Committee Chairman Max Baucus (D - Mont.) has expressed dismay at the findings of a report by the Government Accountability Office (GAO), which show that US multinational companies are increasingly reporting income offshore to cut their tax bills. The GAO report, published on Monday, found that the number of foreign operations of US companies is increasing, with the largest companies paying the lowest effective tax rates, and more income being reported in lower tax rate jurisdictions outside the US. However, what has provoked the ire of Baucus and his Republican counterpart on the committee, Chuck Grassley, is the report’s conclusion that businesses may be manipulating existing tax laws by shifting corporate income and tax planning to foreign tax rate jurisdictions in which they operate. …The GAO, which based its report on an analysis of Internal Revenue Service (IRS) data on corporate taxpayers, found that the average US effective tax rate on the domestic income of large corporations with positive domestic income in 2004 was an estimated 25.2%, although there was considerable variation in tax rates across these taxpayers. The average US effective tax rate on the foreign-source income of these large corporations was around 4%, reflecting the effects of both the foreign tax credit and tax deferral on this type of income. Effective tax rates on the foreign operations of US MNCs vary considerably by country, according to the report. Estimates for 2004 show that Bermuda, Ireland, Singapore, Switzerland, the United Kingdom, Caribbean Islands, and China had relatively low rates among countries that hosted significant shares of US business activity, while Italy, Japan, Germany, Brazil, and Mexico had relatively high rates. …the GAO concluded that the reporting of the geographic sources of income “is susceptible to manipulation for tax planning purposes” and appears to be influenced by differences in tax rates across countries. “Most of the countries studied with relatively low effective tax rates have income shares significantly larger than their shares of the business measures least likely to be affected by income shifting practices: physical assets, compensation, and employment. The opposite relationship holds for most of the high tax countries studied,” the GAO stated.

The beneficial impact of tax competition can be seen in this Financial Timesreport on the UK tax system. The corporate rate has finally been lowered, but other nations are reducing tax rates even faster, so Gordon Brown is being pushed to cut tax rates yet again:

This year’s cut in the corporate tax rate has failed to push the UK decisively up the international rankings, according to a new survey that shows Britain’s efforts to improve its tax competitiveness have been blunted by similar efforts elsewhere. The UK now has the 20th lowest corporate tax rate of the 27 European Union member states, a slight improvement for businesses on last year’s 21st position, according to the survey by KPMG, professional services firm. …KPMG said: “This continued downward pressure on worldwide and European corporate tax rates will add to the pressure on the UK authorities to address the UK’s perceived lack of competitiveness on tax.” The impact of April’s 2 percentage point cut to 28 per cent was tempered by cuts elsewhere, which pushed average global and European corporate tax rates down by 1 percentage point. The UK’s corporate tax rate remains higher than the global average of 25.9 per cent and the EU average rate of 23.2 per cent. The UK’s corporate rate cut ensured that it continued to have a lower rate than Germany at 29.5 per cent, preserving the Treasury’s goal of having the lowest rate in the G7. But the UK is facing tough competition for holding companies from smaller low-tax European rivals, particularly Ireland, Luxembourg, Switzerland and the Netherlands, as demonstrated by recent moves out of the UK announced by Shire, UBM, Henderson, Charter and Regus.